Jon Corzine pause
Jon Corzine, former CEO of MF Global, should be blocked from using money that would have gone to creditors to pay damages the failed firm's clients, a federal court has been told.
(Andrew Harrer/Bloomberg)

Jon Corzine, former head of MF Global Holdings Ltd., shouldn’t be able to use money that would flow to creditors of the bankrupt futures broker to cover the damages he and others caused to former customers, the Commodity Futures Trading Commission told a court.

PricewaterhouseCoopers LLP, MF Global’s former auditor, and individual defendants in a lawsuit over the collapse of MF Global have misinterpreted a CFTC rule, the agency said today in papers filed in Manhattan bankruptcy court. Separately, a trustee said he is authorized to return 100 percent of missing customer funds, even though Corzine and other defendants claim the money belongs to the general bankruptcy estate.

The CFTC said Corzine and PwC’s misinterpretation would allow them to indemnify themselves against damages to MF Global customers using assets that otherwise would belong to general creditors.

The CFTC’s court filing “seeks to ensure that Mr. Corzine doesn’t avoid liability for lost customer funds,” CFTC Commissioner Bart Chilton said in a statement. “We are continuing our efforts to see that customer funds are repaid fully and as soon as possible.”

The CFTC sued Corzine, the ex-New Jersey governor and onetime Goldman Sachs Group Inc. co-chairman, in June for failing to properly supervise MF Global Holdings as the firm spiraled toward bankruptcy in 2011. It settled its claims against operating unit MF Global Inc. in an accord calling for the company to repay customers in full and pay a $100 million civil penalty if it has money left.

Class Action

PwC and MF Global’s former managers, including Corzine, also face a class-action lawsuit. A trustee collecting funds for customers, James Giddens, is cooperating with plaintiffs in the case, which is overseen by U.S. District Judge Victor Marrero.

Giddens has determined that since the bankrupt estate has overlapping claims with the class-action plaintiffs, he will allow the suit to represent the estate’s interest. He will then then distribute any proceeds from the case.

Giddens will seek court approval at a hearing Nov. 5 to return 100 percent of customer funds. The distributions would be made by advancing $233 million from MF Global’s general bankruptcy estate, Giddens said in court papers.